Commentary on Economics, Information and Human Action

Solar eclipses and the electric grid: Markets and automation

Yesterday’s solar eclipse across the US amplified a dominant issue in electricity policy discussions over the past couple of years — does increasing use of distributed energy resources like solar photovoltaics make the grid more resilient, or does it lead to imbalance and inadequacy? In California during the eclipse (Financial Times), solar generation dropped compared to the day before, while system operators implemented algorithms to bring on more hydroelectric generation to meet demand:

As solar production declined, the California grid manager tapped more supplies from natural gas-fired power plants and hydroelectric dams, executing plans they have been crafting for months. It also imported power from neighbouring states.

Solar output then roared back as the eclipse rolled eastward at midday, when the sun’s radiation is strongest.

The event was a kind of dress rehearsal for a future in which intermittent solar sources have a bigger role in the power supply. California aims to generate half its power from renewable sources by the year 2030.

“We were really pleased with how smoothly everything went,” an ISO spokeswoman said. “It bodes wells for renewable energy on the grid during an event like this.”

Automation and smart grid technologies are already making this kind of distributed resource interconnection both feasible and valuable. The combination of market institutions and digital technologies at the consumer retail level would amplify that capability and that potential value creation. A key factor here is dynamic pricing, a topic that I covered a lot several years ago.

In a recent Forbes post, Koichiro Ito of the University of Chicago connects these ideas and reports some findings from his research on consumer response to time-of-use (not dynamic) pricing in Japan. Ito and his co-authors tested two hypotheses: the information given to consumers about how much money they are likely to save on TOU pricing changes their behavior, and a cash payment to enroll in the program changes their behavior.

We studied more than 2,000 households in Japan who could join a new time-based program that offered a low electricity rate during the morning and night, and a higher rate in the afternoon when electricity use was at its peak. Our goal was to measure what role information and incentives play in the customers’ decision-making. Some customers received very little information about the programs. Another group of customers was given information on how much their electricity bills would increase or decrease under the new plan. And a final group was given the same information plus a $60 bonus for switching.

Some of their results were expected (cash payments induced switching), while some were unexpected. In particular, the consumers who actually changed their electricity consumption the most were those who did not receive either additional information or a cash incentive — whether through intrinsic motivation to reduce energy consumption or some other motive, the most responsive consumers changed their behavior without information or external incentive.

The behavioral aspects of this result have important implications for policy: information and cash incentives are not necessarily sufficient to induce widespread reductions in electricity consumption, even in response to a high peak price in a TOU contract. But what about technologies that make it easier and cheaper for non-intrinsically-motivated consumers to change their behavior?

I’d like to see the research take the next step to transactive energy, to test the hypothesis that consumers with information and with transactive technology they can use to automate their response to price changes will change their behavior as much as the baseline intrinsically motivated consumers. In an experiment with TOU pricing such transactive technology is not necessary because the pricing is not dynamic, but imagine an experiment with real-time pricing, transactive consumer technology, and this treatment design.

One thought on “Solar eclipses and the electric grid: Markets and automation”

Lynne: I really like you and respect you, but ! think you are naive about what “renewables” are good for and what they are intended to do. The advocates of “renewables” don’t want to usher in a free market paradise. They want to control the lives of the American people, impoverish them, and demoralize them.

Smart meters are seen by them not as a way to allow consumers to control their choices, but as a way that the “environmentalist” elite can reach into your house and turn off your air conditioning in the middle of summer and your heat in the middle of winter. At 4 am on a January morning when there is no “solar energy” because it is 4 hours until the sun rises high enough to make solar cells work, and the winds are dead calm, they will prevent brownouts by using your smart meter to turn off your electricity so that your furnace stops. Cold? Put on longies.

Further, the imposition of “renewables” requirements will cause the price of such electricity as you can lay your hands on to skyrocket.

Germany and Denmark have gone the farthest into the dark night of “renewables” and have electricity prices almost four times as high as most places in the US.

Willis Eschenbach is one of my favorite writers at “Watts Up With That” which bills itself as “the world’s most viewed site on global warming and climate change”. If you are at all skeptical about global warming, you should read it regularly so that you can understand why the proper attitude towards claims of CAGW (Catastrophic Anthropomorphic Global Warming) is skepticism bordering on disbelief. Lots of the commentary is provided by or linked to real scientists, such as Roy Spencer and Judith Curry.

His chart shows that the retail price of electricity should be expected to increase by 0.0002 U.S.$ for each additional KW of installed renewable generating capacity. R^2 = 0.84, p-value = 1.5E-8.

He says: “That is a most interesting result. Per capita installed renewable capacity by itself explains 84% of the variation in electricity costs. …

“Today, President Obama said that he wanted 28% of America’s electricity to come from renewable energy by 2030. …

“Currently, we get about 4% of our electricity from wind and solar. He wants to jack it to 28%, meaning we need seven times the installed capacity. … this means that the average price of electricity in the US will perforce go up to no less than 43 cents per kilowatt-hour. …

“Since the current average US price of electricity is about 12 cents per kilowatt-hour … that means the true price of electricity is likely to almost quadruple in the next 15 years.”

If you want to see what the future of the US economy is if the “environmentalists” get their way, don’t read Adam Smith. Look at Venezuaela